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Proposed legislation to curtail convening of shareholder meetings by activists

On 2 March 2015, the Australian Parliament passed legislation to abolish the ability of 100 or more shareholders to compel an Australian company to convene a shareholder meeting.

The legislation is part of the Federal Government’s initiative to repeal excessive regulation and reduce compliance costs under Australian law.

Prior to this change, a general meeting of a company’s shareholders could be requisitioned by:

at least 100 members who are entitled to vote at the meeting (the 100 member rule); or

members with at least 5% of the votes that may be cast at the meeting (the 5 percent rule).

The 100 member rule has been a source of particular frustration for Australian listed companies, as the rule is not subject to a minimum shareholding requirement. All that is required is at least 100 shareholders holding at least one share each. This is an easy requirement for activists to satisfy, and has often been utilised by groups pursuing political, social or environmental agendas. As a consequence, Australian listed companies have been required to convene general meetings – at significant expense – by activists who hold an immaterial shareholding and have little prospect of having their proposed resolutions passed at the meeting.

The new legislation will abolish the 100 member rule. However, at least 100 shareholders will continue to be able to place matters on the agenda of a general meeting convened by the company or other parties. The market has been less concerned with this last power, since it relates to an already convened meeting, and is generally less likely to result in material additional expense for the company concerned.

The existing 5 percent rule will be unaffected by the change. Accordingly, any one or more shareholders holding at least 5 percent of voting shares will continue to be able to requisition a general meeting of shareholders.

As of the date of writing, the proposed legislation is awaiting royal assent.